Thursday, July 16, 2009

If CIT is toast, could GE Capital be next?

From Dealscape:

General Electric Co. (NYSE:GE) is slated to announce its second-quarter earnings on Friday, ironically the same day that besieged lender CIT Group Inc. (NYSE:CIT) is expected to file for Chapter 11 bankruptcy after bailout talks with the government fell apart on Wednesday. (The Deal Pipeline subscribers can see the full story here.)

If CIT files for bankruptcy, it's sure to undermine market confidence in GE Capital, which is in many of the same businesses as CIT.

Formerly a unit of Tyco before being spun out, CIT no longer has the enormous balance sheet of a corporate parent to draw upon when it finds itself unable to get short-term financing.

GE Capital doesn't have that problem.

GE has propped it up, as has access to the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program. GE Capital has already issued a whopping $74 billion in bonds guaranteed by Uncle Sam -- making it the single biggest user of the scheme administered by the FDIC, according to Breakingviews.

While the situation at GE Capital isn't as dire as it is at CIT, things are far from rosy.

Back in April, Business Insider highlighted a Jim Grant presentation that revealed over $40 billion in exposure on GE Capital's balance sheet, more than enough to sink the finance unit and its parent. Henry Blodget wrote at the time...MORE